Equity Issuances, Equity Mutual Fund Flows, and Noise Trader Sentiment

Forthcoming in the Review of Finance

58 Pages Posted: 28 Aug 2009 Last revised: 5 Feb 2013

See all articles by Hsin-Hui Chiu

Hsin-Hui Chiu

California State University, Northridge

Omesh Kini

Georgia State University

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2013

Abstract

We examine whether equity issuances (IPOs and SEOs) are in part driven by investor sentiment by using equity mutual fund flows to proxy for the rational and/or irrational components of aggregate demand for equity. We find that more firms issue equity when flows are higher and repurchase equity when flows are lower. More firms file with the SEC when predicted flows in the expected issuance month are greater. Price revisions are positively related to contemporaneous flows and unexpected flows. Initial returns are positively related to contemporaneous flows only for IPO issuances. These results are driven by retail, and not institutional, flows. Our evidence suggests that investor sentiment partially drives equity issuances.

Keywords: Initial public offerings (IPOs), Seasoned equity offerings (SEOs), Share repurchases, Equity mutual fund flows, Noise trader sentiment

JEL Classification: G20, G32

Suggested Citation

Chiu, Hsin-Hui and Kini, Omesh, Equity Issuances, Equity Mutual Fund Flows, and Noise Trader Sentiment (February 1, 2013). Forthcoming in the Review of Finance. Available at SSRN: https://ssrn.com/abstract=1462982 or http://dx.doi.org/10.2139/ssrn.1462982

Hsin-Hui Chiu (Contact Author)

California State University, Northridge ( email )

18111 Nordoff Street
Northridge, CA 91330
United States

Omesh Kini

Georgia State University ( email )

University Plaza
Atlanta, GA 30303-3083
United States
404-651-2656 (Phone)

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